How Medical Debt Affects Your Credit Score and What to Do About It

Medical debt is one of the most common and frustrating types of overextended debt for middle-class Americans. Even with health insurance, a single emergency room visit, a surgery, or a chronic condition can leave you with thousands of dollars in bills. According to the Consumer Financial Protection Bureau, medical debt makes up a significant portion of all debt collections on credit reports. Understanding how this debt affects your credit score — and knowing what steps you can take to manage it — can help you protect your financial health while you deal with your physical health.

When you receive a medical bill and cannot pay it immediately, the hospital or doctor’s office will first send you reminders. If those go unpaid for several months, the provider may sell your debt to a third-party collection agency. That is the moment your credit score is most at risk. Once a debt is in collections, the collection agency can report it to the three major credit bureaus: Equifax, Experian, and TransUnion. This entry can stay on your credit report for up to seven years from the date the debt first became overdue. A collection account typically drops your credit score by 50 to 100 points or more, depending on your starting score and other factors.

However, medical debt is different from other types of debt in a few important ways. For one, the credit bureaus have specific rules for how they handle medical collections. Starting in 2023, the three major bureaus agreed to remove from credit reports any medical collection debts that have been paid or are being paid through insurance. Also, medical collection debts under $500 are no longer included on credit reports at all. These changes mean that small medical bills or bills you have already settled will not hurt your credit the way they used to. Still, any medical debt over $500 that goes to collections and stays unpaid can damage your score.

The good news is that you have options to prevent or reduce the damage. The first step is to review every medical bill carefully. Billing errors are extremely common in the medical industry. A study by the American Medical Association found that nearly one in five medical bills contains a mistake, such as a wrong procedure code, a double charge, or a service you never received. Always request an itemized bill from the provider and compare it with your insurance Explanation of Benefits, which shows what your insurance covered and what you supposedly owe. If you find an error, call the billing department and ask for a correction. Often, the amount you owe can be reduced significantly.

If the bill is accurate but you cannot pay it in full, do not ignore it. Ignoring a medical bill is the fastest way to end up with a collection account on your credit report. Instead, contact the hospital or doctor’s billing office and ask about financial assistance, a payment plan, or a discount. Many hospitals are required by law to offer charity care or income-based discounts, especially if you are a middle-class consumer with a moderate income. Even if you are not eligible for charity care, most providers will agree to a monthly payment plan with no interest. A payment plan keeps the debt out of collections and protects your credit score.

Another powerful tool is to ask the provider to renegotiate the bill. Medical providers often accept less than the full amount if you offer a lump-sum payment. You can say something like, “I have $500 available right now to settle this $2,000 bill. Will you accept that as payment in full?” This is called a pay-for-delete settlement, and many hospitals will agree rather than selling the debt to a collection agency for pennies on the dollar. If they accept, get the agreement in writing before you send any money.

If the debt has already gone to collections, you still have options. First, verify that the collection agency owns the debt and that the amount is accurate. You have the legal right to request a debt validation letter within 30 days of first contact. If the agency cannot provide proof, they must stop collection efforts and remove the account from your credit report. This is a common reason medical collections get removed.

Even if the debt is valid, you can negotiate with the collection agency to remove the account from your credit report in exchange for payment. This is called a “pay-for-delete” agreement, and while not all collection agencies agree to it, many will. Always get the agreement in writing before paying.

If you cannot pay the full amount, consider a medical credit card or a loan from a nonprofit credit counseling agency. But be careful with medical credit cards offered at the hospital — they often have deferred interest that can backfire if you miss a payment. A better option is to work with a nonprofit credit counselor who can help you create a debt management plan specifically for medical bills.

Finally, remember that medical debt is less damaging to your credit than other types of debt, thanks to the new rules. If you pay a medical collection, the credit bureaus will remove it from your report, unlike other collections that remain visible for seven years. This gives you a strong incentive to pay off old medical debts even if they have already hurt your score.

Your health comes first. But protecting your credit score while you manage medical bills is an important part of staying financially stable. Review every bill, negotiate with providers, and use payment plans or settlements to keep debt out of collections. With these steps, you can handle medical debt without destroying your credit.